Your supply chain is the secret to sustainability success
This story is part of The Path to Zero, a series of special reports on how business can lead the fight against climate change. This quarter’s stories go in depth on sustainability in supply chains.
Consider the average car that a consumer will buy at the end of this decade. It will cost around $35,000. It will be made of about one metric ton of steel, 400 kilograms of plastic, 400 kilograms of aluminum, and batteries that will be significantly heavier than those we have today. Now imagine that the same car is built with materials produced with net-zero impact. It would have to cost a small fortune, right?
Actually, no. According to modeling we’ve done at BCG, the incremental costs to make a net-zero car would add less than 2% to the final price—about what it would cost for leather upholstery, heated seats, or a fancier sound system.
When I saw these numbers for the first time several months ago, I was sure they couldn’t be right. How could the added cost be so low? In fact, the shift to net zero would substantially raise the costs of the steel, plastic, aluminum and batteries. But the essential point is that those costs make up only a small fraction of the total price that the consumer is paying.
This same observation holds true in supply chain after supply chain, whether it’s in fashion, auto, electronics, professional services, fast-moving consumer goods, food, or freight. Analysis suggests that when you take an end-to-end supply chain view, it’s possible to reduce about 40% of the emissions across the eight major global supply chains for less than $12 per ton of carbon dioxide (CO2) equivalents, only marginally affecting product price. And going all the way to net zero would increase the end price across a vast range of products by only 1% to 4%. That’s less than $600 extra for that car, $3 for a smartphone, and $1 for a pair of jeans.
And that fact—that decarbonization adds only modest costs to the end of any value chain—presents the biggest opportunity for business to make a real mark in the battle against climate change.
Of course, the upstream producers of agricultural and heavy industrial inputs, which account for the vast majority of the emissions embedded in the products we use every day, can’t be expected to fund a net-zero transition alone. But end-consumer companies—which often have higher margins and a more engaged consumer base—can collaborate across company boundaries and country borders to decarbonize their end-to-end supply chains.
Tackling the supply chain challenge
With the potential for huge impact at manageable cost, why has the supply chain sustainability agenda not yet been launched at scale? Many company leaders are eager to cut supplier emissions, but it’s a daunting proposition.
While they are getting increasingly adept at tracking and measuring their own emissions, it’s much more challenging for leaders to have the same clarity about their suppliers’ product-specific emissions—especially for companies with tens of thousands of product components and a constantly changing supplier base. They face obstacles in data and analytics, tracking and measuring, procurement, certification, and more.
To manage these problems, companies need to gain a clear picture of the emissions from upstream activities by building a comprehensive database that uses supplier-specific data where possible. This can serve as a basis for defining, aligning on, and committing to clear reduction targets for the years ahead.
It’s also important, where it can be done, to redesign products and business models for “circularity,” incorporating sustainability into material selection, feature development, and more. Companies should also engage with their suppliers on emissions standards, adding sustainability metrics to procurement standards and offering better terms to those that show progress.
Priority actions are company- and supply-chain specific. If you are a fast-moving consumer goods company, your initial focus might be on ensuring a circular model for your packaging or redesigning your products to use ingredients with a lower environmental impact. A construction company is likely to push suppliers to implement processes for creating lower-carbon cement and to invest in carbon capture technologies (a longer-term and more expensive proposition). In professional services, we must switch to renewable energy and heat in our offices and help fund the scale-up of sustainable aviation fuels.
Of course, governments could, and must, make it easier—by putting a price on carbon, catalyzing investment in innovation, incentivizing companies to change, and protecting those that do change from competitors that don’t. But alongside government support—or even absent it in the short term, if necessary—business can be a powerful partner in drastically cutting back on upstream emissions and increasing climate impact.
Getting on track for Paris compliance
A handful of companies have already made progress in this arena. BMW, for example, has adopted a highly ambitious supply chain CO2 reduction target—even tying management compensation to achieving its goal.
Ikea is also deepening its sustainable supply chain reach, investing in resources critical for the company’s long-term development, such as sustainable energy, wood, and recycled materials. The company now owns and directly manages about 243,000 hectares of forests in the U.S. and Europe.
And Apple has expanded its sustainability commitments, promising to be net zero across its entire business, product life cycle, and manufacturing supply chain by 2030. The company is involved in the development of low-carbon aluminum, the first batch of which will be used in certain MacBooks.
To get on track for a Paris Agreement–compliant world, we need to see collaboration across supply chains at a huge scale. Of course, government action will be critical to set the world on a net-zero path. But with so much at stake and the necessary technologies largely available to us, I urge my fellow CEOs to seize the supply chain opportunity.
Rich Lesser is CEO of Boston Consulting Group.
Some of the companies mentioned in this article are BCG clients.
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